First Quarter 2021 Earnings Call - John Plant: Executive Chairman and Co-Chief Executive Officer Tolga Oal: Co-Chief Executive Officer Ken ...
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First Quarter 2021 Earnings Call John Plant: Executive Chairman and Co-Chief Executive Officer Tolga Oal: Co-Chief Executive Officer Ken Giacobbe: EVP and Chief Financial Officer May 6, 2021
Important Information
Forward–Looking Statements
This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as "anticipates," "believes," "could," "estimates," "expects,"
"forecasts," "goal," "guidance," "intends," "may," "outlook," "plans," "projects," "seeks," "sees," "should," "targets," "will," "would," or other words of similar meaning. All
statements that reflect Howmet Aerospace’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking
statements, including, without limitation, statements, forecasts and outlook relating to the condition of end markets; future financial results or operating performance;
future strategic actions; Howmet Aerospace's strategies, outlook, and business and financial prospects; and any future dividends or share repurchases. These statements
reflect beliefs and assumptions that are based on Howmet Aerospace’s perception of historical trends, current conditions and expected future developments, as well as
other factors Howmet Aerospace believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject
to risks, uncertainties and changes in circumstances that are difficult to predict, which could cause actual results to differ materially from those indicated by these
statements. Such risks and uncertainties include, but are not limited to: (a) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet
Aerospace’s business, results of operations, and financial condition; (b) deterioration in global economic and financial market conditions generally, including as a result
of pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the COVID-19 pandemic
continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations); (c) unfavorable changes in the markets
served by Howmet Aerospace; (d) the impact of potential cyber attacks and information technology or data security breaches; (e) the loss of significant customers or
adverse changes in customers’ business or financial conditions; (f) manufacturing difficulties or other issues that impact product performance, quality or safety; (g)
inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (h) the inability to achieve revenue growth, cash generation, cost savings,
restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (i) competition from new
product offerings, disruptive technologies or other developments; (j) geopolitical, economic, and regulatory risks relating to Howmet Aerospace’s global operations,
including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (k) the outcome of contingencies, including legal
proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet Aerospace to substantial costs and liabilities; (l)
failure to comply with government contracting regulations; (m) adverse changes in discount rates or investment returns on pension assets; and (n) the other risk factors
summarized in Howmet Aerospace’s Form 10-K for the year ended December 31, 2020 and other reports filed with the U.S. Securities and Exchange Commission.
Market projections are subject to the risks discussed above and other risks in the market. The statements in this presentation are made as of the date of this
presentation, even if subsequently made available by Howmet Aerospace on its website or otherwise. Howmet Aerospace disclaims any intention or obligation to
update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.
2Important Information (continued)
On April 1, 2020, Arconic Inc. completed the separation of its businesses into two independent, publicly-traded companies: Howmet Aerospace
Inc. (the new name for Arconic Inc.) and Arconic Corporation. The historical results of the businesses that comprise Arconic Corporation are
presented as discontinued operations in Howmet Aerospace’s consolidated financial statements (other than cash flows, equity and comprehensive
income related to Arconic Corporation, which have not been segregated and are included in the Statement of Consolidated Cash Flows and
Statement of Consolidated Comprehensive Loss, respectively). Income statement values shown in this presentation are on the basis of continuing
operations only, and exclude the effects of discontinued operations. The calculation of adjusted free cash flow is on the basis of continuing and
discontinued operations.
Non-GAAP Financial Measures
Some of the information included in this presentation is derived from Howmet Aerospace’s consolidated financial information but is not presented in Howmet
Aerospace’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain of these data
are considered “non-GAAP financial measures” under SEC rules. These non-GAAP financial measures supplement our GAAP disclosures and should not be considered
an alternative to the GAAP measure. Reconciliations to the most directly comparable GAAP financial measures and management’s rationale for the use of the non-
GAAP financial measures can be found in the Appendix to this presentation. Howmet Aerospace has not provided reconciliations of any forward-looking non-GAAP
financial measures, such as adjusted EBITDA, adjusted EBITDA margin, adjusted free cash flow and adjusted earnings per share (or earnings per share excluding
special items), to the most directly comparable GAAP financial measures because such reconciliations are not available without unreasonable efforts due to the
variability and complexity with respect to the charges and other components excluded from the non-GAAP measures, such as the effects of foreign currency
movements, equity income, gains or losses on sales of assets, taxes, and any future restructuring or impairment charges. These reconciling items are in addition to
the inherent variability already included in the GAAP measures, which includes, but is not limited to, price/mix and volume. Howmet Aerospace believes such
reconciliations would imply a degree of precision that would be confusing or misleading to investors.
“Adjusted free cash flow” is cash provided from (used for) operations, less capital expenditures, plus cash receipts from sold receivables. Any reference to historical
EBITDA means adjusted EBITDA for which we have provided calculations and reconciliations in the Appendix.
3Q1 2021 Highlights
Revenue and Profitability Excluding Special Items1 Q1 2020 Q4 2020 Q1 2021
Revenue $1.634B $1.238B $1.209B
Adjusted EBITDA1 $385M $282M $275M
Adjusted EBITDA Margin1 23.6% 22.8% 22.7%
Adjusted Operating Income2 $314M $215M $208M
Adjusted Earnings Per Share from Continuing Operations3 $0.44 $0.21 $0.22
Balance Sheet and Cash Flow
• Record Q1 Adj Free Cash Flow of ($4M)4 including ($41M) working capital use and ($24M) severance cash costs
• Q1 2021 Ending Cash balance of $1.24B including early redemption of April 2021 notes for ~$360M
• Completed early redemption of February 2022 notes for ~$500M on May 3rd 2021
1) Income from Continuing Ops (GAAP): Q1 2020 = $153M, Q4 2020 = $106M, Q1 2021 = $80M 2) Operating income (GAAP): Q1 2020 = $258M, Q4 2020 = $221M, Q1 2021 = $189M
3) EPS from Continuing Ops (GAAP): Q1 2020 = $0.35, Q4 2020 = $0.24, Q1 2021 = $0.18 4) Cash used for operations = ($6M), Cash used for financing activities = ($368M), Cash provided from investing
activities = $3M See appendix for reconciliations 4Q1 2021 Above Expectations; Strong Profit and Cash Performance
▪ Q1 2021 Revenue same as Q2 – Q4 2020 average driven by declines in Commercial Aerospace
▪ Commercial Aerospace down (52%) due to customer inventory corrections
Markets ▪ Defense Aerospace up 12% driven by Joint Strike Fighter new builds and spares
▪ Industrial Gas Turbines up 35% driven by new builds and spares
▪ Commercial Transportation up 15% despite customer supply chain constraints
▪ Price increases continued in line with expectations primarily tied to long term agreements
▪ Structural cost reductions maintained with $61M benefit
Price Increase /
Cost Reduction / ▪ Segment Decremental margins of 27% driven by price, variable cost flex and fixed cost management
Cash Management
▪ Capex of $55M; less than Depreciation and Amortization of $68M
▪ Adj Free Cash Flow less seasonal; Cash generation expected in Q2, Q3 and Q4 2021
Comparisons are year over year unless otherwise noted. See appendix for reconciliations
5Q1 2021 Adjusted EBITDA Margin 22.7%1; Consistent with Q4 2020 on less Revenue
Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q1 2021
▪ Revenue driven by Customer Inventory
3rd Party Revenue $1,253M $1,134M $1,238M $1,209M
corrections in Commercial Aerospace
• Q1 2021 at $1,209M
Adjusted EBITDA1 $247M $168M $282M $275M • Q2 2020 – Q4 2020 Average $1,208M
▪ Sequential Adj EBITDA Margins consistent
▪ Adj EBITDA Margin expansion of 300 bps
Adjusted EBITDA Margin1 19.7% 14.8% 22.8% 22.7% versus Q2 2020 on ~$45M less revenue
1) Howmet Consolidated: Q2 2020 Loss from Continuing Ops (GAAP) = ($84M), Q3 2020 Income from Continuing Ops (GAAP) = $36M, Q4 2020 Income from Continuing Ops (GAAP) = $106M,
Q1 2021 Income from Continuing Ops (GAAP) = $80M See appendix for reconciliations 6Q1 2021 Revenue Down (26%) YoY; Commercial Aerospace ~40% of Revenue
Revenue by Market Revenue by Market YoY
(% of total) (% change)
Industrial Aerospace - Commercial (52%)
& Other
17%
Aerospace - Defense 12%
Aerospace -
Commercial
38% Subtotal - Aerospace (39%)
Commercial
Transportation
23% Commercial Transportation 15%
Industrial & Other 1 1%
Aerospace -
Defense
22%
Total Revenue (26%)
7
1) IGT represents ~45%, general Industrial represents ~40%, and Oil & Gas represents ~15% of total Industrial & OtherEngine Products: Commercial Aero Inventory Corrections; Cost Reductions
Revenue by Market
-32% (% of total)
$781M Aerospace - Commercial
$585M $555M
Aerospace - Defense
$485M $534M
3rd Party Industrial
& Other
Industrial & Other
Aerospace -
Revenue 29% Commercial
43%
Aerospace
- Defense
28%
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
Q1 2021 YoY
-39%
– Commercial Aerospace Inventory Corrections
Segment $165M
– Spares / Aftermarket Demand remained low
Operating $105M $108M $101M
Profit and – Boeing 737 MAX Production Declines
21.1%
Margin 17.9% $39M 19.5% 18.9% – COVID-19 Productivity and Cost Impacts
8.0%
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
– IGT Investments linked to incremental demand
+ Defense Aero & Industrial Gas Turbine Growth
Q1 2021 Depreciation & Amortization (D&A) of $31M, 5.8% of Segment Revenue
+ Cost Reductions 8
See appendix for reconciliationsFastening Systems: Commercial Aero Inventory Corrections; Cost Reductions
Revenue by Market
-29% (% of total)
Aerospace - Commercial
$385M Aerospace - Defense
$326M Industrial
& Other Commercial Transportation
3rd Party $271M $263M $272M 14%
Industrial & Other
Revenue Commercial
Transportation
Aerospace -
Commercial
17%
54%
Aerospace -
Defense
15%
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
Q1 2021 YoY
– Commercial Aerospace Inventory Corrections
-53%
Segment $96M – Boeing 737 MAX and 787 Production Declines
Operating $70M
Profit and $48M $45M – COVID-19 Productivity and Cost Impacts
24.9% $33M
Margin 21.5%
18.3% – Furloughed production workers returned in Q1
12.2% 16.5%
+ Industrial and Commercial Transportation
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
mitigating Commercial Aerospace
+ Cost Reductions
Q1 2021 Depreciation & Amortization (D&A) of $12M, 4.4% of Segment Revenue 9
See appendix for reconciliationsEngineered Structures: Commercial Aero Inventory Corrections; Cost Reductions
Revenue by Market
-36% (% of total)
Aerospace - Commercial
$275M
Industrial
$229M $217M Aerospace - Defense
$206M & Other
3rd Party $176M 11%
Industrial & Other
Revenue
Aerospace -
Commercial
Aerospace 45%
- Defense
44%
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
Q1 2021 YoY
-64%
– Commercial Aerospace Inventory Corrections
Segment $28M
– Boeing 787 and 737 MAX Production Declines
Operating $19M
$16M – COVID-19 Productivity and Cost Impacts
Profit and 10.2% $10M $10M
Margin 8.3%
4.9%
7.4%
5.7% + Defense Aero Growth
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 + Level Loading of Operations continues
+ Cost Reductions
Q1 2021 Depreciation & Amortization (D&A) of $12M, 6.8% of Segment Revenue 10
See appendix for reconciliationsForged Wheels: Market Recovery; Q1 2021 Profitability Exceeded Q1 2020
+19% Revenue by Region
$227M (% of total)
$191M $203M North America
$172M Other Europe
3rd Party $113M
17% Other
Revenue North
America
Europe 53%
30%
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
Q1 2021 YoY
+40% + Commercial Transportation Growth Continues
Segment $62M
$70M
Operating $50M
+ Forged Wheels Growth Above Market
Profit and $35M
30.8% + Maximizing Production in Low-Cost
30.5%
Margin 26.2%
20.3%
Countries; Increasing 39 lb. Wheel Capacity
$6M
5.3%
+ Successful Cost Management with Volume
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Increases
Q1 2021 Depreciation & Amortization (D&A) of $10M, 4.4% of Segment Revenue
– Customer Supply Chain Constraints
Revenue by Region based upon shipment invoice 11
See appendix for reconciliationsNext Maturity October 2024
Oct
5.125% May • Redeemed all 2021/2022 notes with Cash on Hand
$1,250 6.875%
$1,200M
$1,200
• All debt unsecured
• $1B Credit Facility undrawn
$1,000M
Paid on May 3rd
with
$800M Cash on Hand
Feb Feb
5.9% 5.95%
$625 $625
$600M Feb
5.87%
$476
$400M Jan
6.75% Aug
$300 4.75%
$250
$200M
2021 2022 2023 2024 2025 2026 2027 2028 2037 2042
122021 Guidance
Q2 21 Guidance FY 2021 Guidance What we expect in 2021
Low Outlook High Low Outlook High ▪ Second half revenue up ~12% vs first half
Revenue $1.17B $1.2B $1.23B $5.05B $5.1B $5.20B ▪ Price Increases greater than 2020
Outlook
Change
Flat ▪ Cost Reduction Carryover of ~$100M+
Adj EBITDA1 $260M $265M $270M $1.125B $1.150B $1.200B
Adj EBITDA Margin1 22.2% 22.1% 22.0% 22.3% 22.5% 23.1% ▪ Pension/OPEB Contributions of ~$160M
Outlook +$50M
Change +90 bps ▪ Capex of $200M - $220M vs Depreciation
and Amortization of ~$270M
Adj Earnings
$0.19 $0.20 $0.21 $0.91 $0.95 $1.02
per Share1
Outlook ▪ Adj Free Cash Flow Conversion ~100%
Change
+$0.15
▪ Expect to reinstate Quarterly Dividend
Adj Free Cash of $0.02 per Share of Common Stock in
$390M $425M $460M
Flow Outlook Q3 20212
Change
+$25M
1) Excluding special items 13
2) Subject to the discretion and final approval of the Board of DirectorsSummary
▪ Healthy start with profit and margin exceeding prior baseline guidance
Q1 ▪ Price increases continued in line with expectations primarily tied to long term agreements
Revenue/Profit
▪ Structural Cost Reductions maintained with $61M YoY benefit
▪ Q1 2021 Ending Cash balance of $1.24B; early redemption of April 2021 notes for ~$360M
▪ Completed early redemption of February 2022 notes for ~$500M on May 3rd
Liquidity
▪ Adj Free Cash Flow less seasonal; Cash generation expected in Q2, Q3 and Q4 2021
▪ $1B Credit Facility undrawn
▪ Expect Q2 revenue similar to Q1 with volume lift in the second half 2021
▪ Second half 2021 revenue expected to be up ~12% vs first half 2021
▪ Raised annual 2021 guidance for Adj EBITDA, Adj EBITDA Margin, Adj EPS, and Adj Free Cash Flow
Guidance
▪ Focus turning to 2021 exit margin rate
▪ Annual pension expense and OPEB liability reductions
▪ Expect to reinstate quarterly dividend of $0.02 per share of common stock in Q3 20211
1) Subject to the discretion and final approval of the Board of Directors 14Appendix
2021 Assumptions
Full Year 2021 2021 Comments
Corporate Overhead ~$76M • Adj Operating Income excluding special items
Depreciation and Amortization ~$270M • Excludes special items
Interest Expense ~$270M • Excludes debt issuance, breakage and tender fees
Operational Tax Rate for
26.5% - 28.5% • Cash Tax Rate ~15%
Continuing Ops
Pension / ~$22M Total
• Total Reduction of ~37% vs prior year excluding curtailments and settlements
OPEB-related Expense ~$15M Non-Service
Post-Tax Unfunded Pension / ~$750M Pension Liability;
• Applied U.S. federal corporate tax rate of 21%
OPEB-related Liability ~$140M OPEB Liability
Pension /
~$160M • Evaluating impact of American Rescue Plan Act (ARPA)
OPEB Contributions
Capex $200-220M • Less than Depreciation and Amortization; Source of Cash
Diluted Share Count Average ~439M
17Combined Segment Decremental Margins1
Q3 2020 Q4 2020 Q1 2021
Q3 2019 Q3 2020 Q4 2019 Q4 2020 Q1 2020 Q1 2021
YoY YoY YoY
Engine Products $844M $485M ($359M) $828M $555M ($273M) $781M $534M ($247M)
Fastening Systems $391M $271M ($120M) $376M $263M ($113M) $385M $272M ($113M)
Engineered Structures $318M $206M ($112M) $312M $217M ($95M) $275M $176M ($99M)
Forged Wheels $241M $172M ($69M) $217M $203M ($14M) $191M $227M $36M
Combined Segment 3rd Party
$1,794M $1,134M ($660M) $1,733M $1,238M ($495M) $1,632M $1,209M ($423M)
Revenue2
Engine Products $161M $39M ($122M) $156M $108M ($48M) $165M $101M ($64M)
Fastening Systems $102M $33M ($69M) $99M $48M ($51M) $96M $45M ($51M)
Engineered Structures $40M $10M ($30M) $39M $16M ($23M) $28M $10M ($18M)
Forged Wheels $60M $35M ($25M) $60M $62M $2M $50M $70M $20M
Combined Segment Operating
$363M $117M ($246M) $354M $234M ($120M) $339M $226M ($113M)
Profit3
Engine Products 34.0% 17.6% 25.9%
Fastening Systems 57.5% 45.1% 45.1%
Engineered Structures 26.8% 24.2% 18.2%
Forged Wheels 36.2% -14.3% 55.6%
Combined Segment Decremental
37.3% 24.2% 26.7%
Margin
1) All metrics exclude Corporate 2) Howmet Consolidated Revenue (GAAP): Q3 2019 = $1,794M, Q4 2019 = $1,734M, Q3 2020 = $1,134M, Q4 2020 = $1,238M, Q1 2020 = $1,634M, Q1 2021 = $1,209M
3) Howmet Consolidated Income (Loss) from Continuing Ops (GAAP): Q3 2019 = $163M, Q4 2019 = $198M, Q3 2020 = ($12M), Q4 2020 = $71M, Q1 2020 = $198M, Q1 2021 = $113M 18
See appendix slides 25 and 33 for reconciliations$16M of Special Items Driven By Plant Fire Costs and Restructuring
Income Income Earnings per
Q1 2021 Special Items ($M, except per share amounts)
Before Tax After Tax Share Diluted
AS REPORTED $113 $80 $0.18
St. Cosme Fasteners/Barberton Wheels plant fire costs $10 $7
Restructuring and other charges $9 $10
Discrete and other tax related items N/A ($1)
Subtotal: Special items $19 $16
EXCLUDING SPECIAL ITEMS $132 $96 $0.22
( ) = income to be deducted from As Reported number; + = expense to be added to As Reported number
19
See appendix for additional detailsReconciliation of Income from Continuing Operations Excluding Special Items
($ in millions, except per-share amounts) Income from continuing operations
excluding Special items Diluted EPS excluding Special items
Quarter ended Quarter ended
March 31, December 31, March 31, March 31, December 31, March 31,
2020 2020 2021 2020 2020 2021
Income from continuing operations $153 $106 $80 $0.35 $0.24 $0.18
Special items:
Restructuring and other charges 39 16 9
Discrete tax items(1) (8) (76) (1)
Other special items(2) 20 44 7
Tax impact(3) (10) 2 1
Income from continuing operations excluding Special items $194 $92 $96 $0.44 $0.21 $0.22
Income from continuing operations excluding Special items and Diluted EPS excluding Special items are non-GAAP financial measures. Management believes that these measures are meaningful to investors because
management reviews the operating results of the Company excluding the impacts of Restructuring and other charges, Discrete tax items, and Other special items (collectively, “Special items”). There can be no
assurances that additional special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Income from continuing operations determined
under GAAP as well as Income from continuing operations excluding Special items.
(1) Discrete tax items for each period are discussed further on the Reconciliation of the Operational Tax Rate.
(2) For the quarter ended March 31, 2020, the special items relate primarily to transaction costs associated with the Arconic Inc. Separation Transaction ($4), new financing costs associated with the Arconic Inc.
Separation Transaction ($7), net costs related to fires at two plants ($11), impairment costs related to facilities closures ($3), partially offset by a favorable tax impact resulting from the difference between the
Company's consolidated estimated annual effective tax rate and the statutory rate applicable to special items $4, and a reimbursement of legal and other advisory costs related to Grenfell Tower $1. For the quarter
ended December 31, 2020, the special items relate primarily to a $53 cost to reverse indemnification receivables as a result of a favorable Spanish tax case which relieved Alcoa Corp. and Arconic Corp. of their
share of the liability, a $9 cost for a reserve related to investment tax credits, and other net charges of $1, offset by a ($19) net benefit for insurance proceeds related to fires at two plants. For the quarter ended
March 31, 2021, the special items relate primarily to net costs related to fires at two plants of $10, offset by the favorable tax impact resulting from the difference between the Company's consolidated estimated
annual effective tax rate and the statutory rate applicable to special items ($3).
(3) The tax impact on Special items is based on the applicable statutory rates whereby the difference between such rates and the Company’s consolidated estimated annual effective tax rate is itself a Special item.
20Reconciliation of Operational Tax Rate
($ in millions)
Quarter ended March 31, 2021
As reported Special items (1)(2) As adjusted
Income from continuing operations before income taxes $113 $19 $132
Provision for income taxes $33 $3 $36
Operational tax rate 29.2% 27.3%
Operational tax rate is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of the Company
excluding the impacts of Special items. There can be no assurances that additional Special items will not occur in future periods. To compensate for this limitation, management believes that it is
appropriate to consider both the Effective tax rate determined under GAAP as well as the Operational tax rate.
(1) Special items for the quarter ended March 31, 2021 include $9 of Restructuring and other charges and $10 related to plant-related fire costs.
(2) Tax Special items includes discrete tax items and tax impact on Special items which is based on the applicable statutory rates whereby the difference between such rates and the Company’s
consolidated estimated annual effective tax rate and other tax related items. Discrete tax items for each period included the following:
• For the quarter ended March 31, 2021, a net benefit for other items ($1).
21Calculation of Segment Operating Profit Margin
Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Engine Products
Third-party sales $ 844 $ 828 $ 3,320 $ 781 $ 585 $ 485 $ 555 $ 2,406 $ 534
Inter-segment sales $ 1 $ 2 $ 11 $ 2 $ 1 $ 1 $ 1 $ 5 $ 1
Segment operating profit $ 161 $ 156 $ 621 $ 165 $ 105 $ 39 $ 108 $ 417 $ 101
Segment operating profit margin 19.1 % 18.8 % 18.7 % 21.1 % 17.9 % 8.0 % 19.5 % 17.3 % 18.9 %
Provision for depreciation and amortization $ 31 $ 31 $ 131 $ 30 $ 31 $ 31 $ 31 $ 123 $ 31
Depreciation and amortization % of Revenue 3.7 % 3.7 % 3.9 % 3.8 % 5.3 % 6.4 % 5.6 % 5.1 % 5.8 %
Restructuring and other charges $ 43 $ 1 $ 297 $ 13 $ 22 $ 9 $ (8) $ 36 $ 5
Capital expenditures $ 39 $ 46 $ 211 $ 19 $ 14 $ 15 $ 29 $ 77 $ 11
Fastening Systems
Third-party sales $ 391 $ 376 $ 1,561 $ 385 $ 326 $ 271 $ 263 $ 1,245 $ 272
Inter-segment sales $ — $ — $ — $ — $ — $ — $ — $ — $ —
Segment operating profit $ 102 $ 99 $ 396 $ 96 $ 70 $ 33 $ 48 $ 247 $ 45
Segment operating profit margin 26.1 % 26.3 % 25.4 % 24.9 % 21.5 % 12.2 % 18.3 % 19.8 % 16.5 %
Provision for depreciation and amortization $ 12 $ 12 $ 48 $ 12 $ 12 $ 12 $ 12 $ 48 $ 12
Depreciation and amortization % of Revenue 3.1 % 3.2 % 3.1 % 3.1 % 3.7 % 4.4 % 4.6 % 3.9 % 4.4 %
Restructuring and other charges $ — $ — $ 6 $ 2 $ 24 $ — $ 13 $ 39 $ 2
Capital expenditures $ 7 $ 12 $ 36 $ 8 $ 7 $ 9 $ 15 $ 39 $ 5
Differences between the total segment and consolidated totals are in Corporate.
Segment Operating Profit and Segment Operating Profit Margin are non-GAAP financial measures. Management believes that these measures are meaningful to
investors because management reviews the operating results of the Company based on Segment Operating Profit and Segment Operating Profit Margin which
excludes the impact of restructuring and corporate expense/income. There can be no assurances that additional restructuring will not occur in future periods. To
compensate for this limitation, management believes that it is appropriate to consider these items. 22Calculation of Segment Operating Profit Margin (continued)
Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Engineered Structures
Third-party sales $ 318 $ 312 $ 1,255 $ 275 $ 229 $ 206 $ 217 $ 927 $ 176
Inter-segment sales $ 4 $ 3 $ 13 $ 3 $ 2 $ 1 $ 1 $ 7 $ 1
Segment operating profit $ 40 $ 39 $ 120 $ 28 $ 19 $ 10 $ 16 $ 73 $ 10
Segment operating profit margin 12.6 % 12.5 % 9.6 % 10.2 % 8.3 % 4.9 % 7.4 % 7.9 % 5.7 %
Provision for depreciation and amortization $ 15 $ 12 $ 58 $ 13 $ 14 $ 13 $ 12 $ 52 $ 12
Depreciation and amortization % of Revenue 4.7 % 3.8 % 4.6 % 4.7 % 6.1 % 6.3 % 5.5 % 5.6 % 6.8 %
Restructuring and other charges $ 1 $ 1 $ 199 $ 17 $ (5) $ 9 $ 7 $ 28 $ 1
Capital expenditures $ 4 $ 5 $ 27 $ 3 $ 5 $ 3 $ 8 $ 19 $ 5
Forged Wheels
Third-party sales $ 241 $ 217 $ 969 $ 191 $ 113 $ 172 $ 203 $ 679 $ 227
Inter-segment sales $ — $ — $ — $ — $ — $ — $ — $ — $ —
Segment operating profit $ 60 $ 60 $ 253 $ 50 $ 6 $ 35 $ 62 $ 153 $ 70
Segment operating profit margin 24.9 % 27.6 % 26.1 % 26.2 % 5.3 % 20.3 % 30.5 % 22.5 % 30.8 %
Provision for depreciation and amortization $ 8 $ 8 $ 32 $ 10 $ 9 $ 10 $ 10 $ 39 $ 10
Depreciation and amortization % of Revenue 3.3 % 3.7 % 3.3 % 5.2 % 8.0 % 5.8 % 4.9 % 5.7 % 4.4 %
Restructuring and other charges $ — $ (1) $ 4 $ 2 $ 1 $ — $ — $ 3 $ —
Capital expenditures $ 11 $ 14 $ 70 $ 7 $ 4 $ 6 $ 6 $ 23 $ 9
Differences between the total segment and consolidated totals are in Corporate.
Segment Operating Profit and Segment Operating Profit Margin are non-GAAP financial measures. Management believes that these measures are meaningful to
investors because management reviews the operating results of the Company based on Segment Operating Profit and Segment Operating Profit Margin which
excludes the impact of restructuring and corporate expense/income. There can be no assurances that additional restructuring will not occur in future periods. To
compensate for this limitation, management believes that it is appropriate to consider these items. 23Calculation of Total Segment Operating Profit Margin (continued)
($ in millions) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Sales – Engine Products $844 $828 $3,320 $781 $585 $485 $555 $2,406 $534
Sales – Fastening Systems $391 $376 $1,561 $385 $326 $271 $263 $1,245 $272
Sales – Engineered Structures $318 $312 $1,255 $275 $229 $206 $217 $927 $176
Sales – Forged Wheels $241 $217 $969 $191 $113 $172 $203 $679 $227
Total segment sales $1,794 $1,733 $7,105 $1,632 $1,253 $1,134 $1,238 $5,257 $1,209
Total segment operating profit(1) $363 $354 $1,390 $339 $200 $117 $234 $890 $226
Total segment operating profit margin 20.2% 20.4% 19.6% 20.8% 16.0% 10.3% 18.9% 16.9% 18.7%
Total Segment operating profit is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of the
Company by Segment excluding the impacts of Corporate, Restructuring and other charges, and Other special items (collectively, “Special items”). There can be no assurances that additional
special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Income from continuing operations determined
under GAAP as well as Total Segment operating profit.
(1) See Reconciliation of Total Segment to Consolidated Totals.
24Reconciliation of Total Segment to Consolidated Totals
Reconciliation of Total Segment Operating Profit to Consolidated Income Before Income Taxes
($ in millions) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Income (loss) from continuing operations before income taxes $163 $198 $210 $198 $(86) $(12) $71 $171 $113
Interest expense 85 82 338 84 144 77 76 381 72
Other expense (income), net 8 5 31 (24) 16 8 74 74 4
Consolidated operating income $256 $285 $579 $258 $74 $73 $221 $626 $189
Unallocated amounts:
Restructuring and other charges 56 10 582 39 105 22 16 182 9
Corporate expense (income)(1) 51 59 229 42 21 22 (3) 82 28
Total segment operating profit $363 $354 $1,390 $339 $200 $117 $234 $890 $226
(1) For the quarter ended September 30, 2019, Corporate expense included $1 of costs associated with the Arconic Inc. Separation Transaction, $5 of costs related to a fire a fasteners plant
and $2 of legal and advisory charges related to Grenfell tower. For the quarter ended December 31, 2019, Corporate expense included $2 of costs associated with the Arconic Inc.
Separation Transaction, $1 in an impairment of assets of the energy business and $1 of legal and advisory charges related to Grenfell tower. For the quarter ended March 31, 2020,
Corporate expense included $4 of costs associated with the Arconic Inc. Separation Transaction, $11 of net costs related to fires at two plants, and impairment costs related to facilities
closures of $3 offset by ($1) net reimbursement related to legal and advisory charges related to Grenfell Tower. For the quarter ended June 30, 2020, Corporate expense included $3 of
costs associated with the Arconic Inc. Separation Transaction, ($6) of reimbursement related to legal and advisory charges related to Grenfell Tower, and $4 of net costs related to a fire at
two plants (net of insurance reimbursements). For the quarter ended September 30, 2020, Corporate expense included ($2) of reimbursement related to legal and advisory charges related
to Grenfell Tower, and $7 of net costs related to a fire at two plants (net of insurance reimbursements). For the quarter ended December 31, 2020, Corporate expense included ($3) of
reimbursement related to legal and advisory charges related to Grenfell Tower, and ($19) of net reimbursement related to fires at two plants. For the quarter ended March 31, 2021,
Corporate expense included $10 of costs related to fires at two plants.
Reconciliation of Total Segment Capital Expenditures to Consolidated Capital Expenditures
($ in millions) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Total segment capital expenditures $61 $77 $344 $37 $30 $33 $58 $158 $30
Corporate and discontinued operations 66 32 297 115 2 3 (11) 109 25
Capital expenditures $127 $109 $641 $152 $32 $36 $47 $267 $55
25Reconciliation of Operating Income and Margin Excluding Special Items
($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Operating income $258 $74 $73 $221 $626 $189
Special items:
Restructuring and other charges 39 105 22 16 182 9
Costs associated with the Arconic Inc. Separation Transaction 4 3 — — 7 —
Legal and other advisory reimbursements related to Grenfell Tower, net (1) (6) (2) (3) (12) —
Plant fire costs (reimbursements), net 11 4 7 (19) 3 10
Impairment costs related to facilities closures 3 — — — 3 —
Operating income excluding Special items $314 $180 $100 $215 $809 $208
Sales $1,634 $1,253 $1,134 $1,238 $5,259 $1,209
Operating income margin 15.8% 5.9% 6.4% 17.9% 11.9% 15.6%
Operating income margin, excluding Special items 19.2% 14.4% 8.8% 17.4% 15.4% 17.2%
Operating income excluding Special items and Operating income margin, excluding Special items are non-GAAP financial measures. Management believes that these measures are meaningful
to investors because management reviews the operating results of the Company excluding the impacts of Special items. There can be no assurances that additional Special items will not occur
in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Operating income determined under GAAP as well as Operating income
excluding Special items.
26Reconciliation of Adjusted EBITDA Excluding Special Items
($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Income (loss) from continuing operations after income taxes $153 $(84) $36 $106 $211 $80
Add:
Provision (benefit) for income taxes $45 $(2) $(48) $(35) $(40) $33
Other (income) expense, net (24) 16 8 74 74 4
Interest expense 84 144 77 76 381 72
Restructuring and other charges 39 105 22 16 182 9
Provision for depreciation and amortization 71 73 68 67 279 68
Adjusted EBITDA $368 $252 $163 $304 $1,087 $266
Add:
Costs associated with the Arconic Inc. Separation Transaction $4 $3 $— $— $7 $—
Plant fire costs (reimbursements), net(1) 11 (2) 7 (19) (3) 9
Legal and other advisory costs related to Grenfell Tower (1) (6) (2) (3) (12) —
Impairment costs related to facilities closures 3 — — — 3 —
Adjusted EBITDA excluding Special items $385 $247 $168 $282 $1,082 $275
Third-party sales $1,634 $1,253 $1,134 $1,238 $5,259 $1,209
Adjusted EBITDA excluding Special items Margin 23.6% 19.7% 14.8% 22.8% 20.6% 22.7%
The Company's definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the
following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Management believes that Adjusted EBITDA and
Adjusted EBITDA excluding Special items Margin are meaningful to investors because they provide additional information with respect to the Company's operating performance and the Company’s ability to meet its financial
obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.
(1) Plant fire costs excludes the impact of $6 of depreciation in the second quarter ended June 30, 2020.
27Reconciliation of Adjusted Free Cash Flow
($ in millions) Q1 2021
Cash used for operations $(6)
Cash receipts from sold receivables 57
Capital expenditures (55)
Adjusted free cash flow $(4)
The net cash funding from the sale of accounts receivables was neither a use of cash nor a source of cash in the first quarter of 2021.
Adjusted free cash flow is a non-GAAP financial measure. Management believes that this measures is meaningful to investors because management reviews cash flows generated from
operations after taking into consideration capital expenditures (due to the fact that these expenditures are considered necessary to maintain and expand the Company's asset base and are
expected to generate future cash flows from operations), as well as cash receipts from net sales of beneficial interest in sold receivables. It is important to note that Adjusted free cash flow
does not represent the residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted
from the measure.
28Reconciliation of Net Debt
($ in millions)
March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 March 31, 2021
Short-term debt $1,336 $391 $384 $376 $489
Long-term debt, less amount due within one year 4,608 4,695 4,697 4,699 4,224
Total debt $5,944 $5,086 $5,081 $5,075 $4,713
Less: Cash, cash equivalents, and restricted cash 2,143 1,285 1,368 1,611 1,239
Net debt $3,801 $3,801 $3,713 $3,464 $3,474
Net debt is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management assesses the Company's leverage position after factoring
in cash that could be used to repay outstanding debt.
29Reconciliation of Net Debt to Adjusted EBITDA Excluding Special Items
($ in millions) Trailing-12 months ended
December 31, 2020 March 31, 2021
Income from continuing operations after income taxes $ 211 $ 138
Add:
Benefit for income taxes (40) (52)
Other expense, net 74 102
Interest expense 381 369
Restructuring and other charges 182 152
Provision for depreciation and amortization 279 276
Adjusted EBITDA $ 1,087 $ 985
Add:
Costs associated with the Arconic Inc. Separation Transaction $ 7 $ 3
Plant fire reimbursements, net (1) (3) (5)
Legal and other advisory costs related to Grenfell Tower, net (12) (11)
Impairment costs related to facilities closures 3 —
Adjusted EBITDA excluding Special items $ 1,082 $ 972
Net debt $ 3,464 $ 3,474
Net debt to Adjusted EBITDA excluding Special items 3.20 3.57
The Company's definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is
equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and
amortization. Management believes that this measure is meaningful to investors because it provides additional information with respect to the Company's operating performance and the
Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.
Net debt is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management assesses the Company's leverage position after factoring in
cash that could be used to repay outstanding debt.
(1) Plant fire costs excludes the impacts of $6 of depreciation in the second quarter ended June 30, 2020.
30Reconciliation of Corporate Expense Excluding Special Items
($ in millions) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Corporate expense (income) $42 $21 $22 $(3) $82 $28
Special items:
Costs associated with the Arconic Inc. Separation Transaction 4 3 — — 7 —
Legal and other advisory reimbursements related to Grenfell Tower, net (1) (6) (2) (3) (12) —
Plant fire costs (reimbursements), net 11 4 7 (19) 3 10
Impairment costs related to facilities closures 3 — — — 3 —
Corporate expense excluding Special items $25 $20 $17 $19 $81 $18
Corporate expense excluding Special items is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating
results of the Company excluding the impacts of Special items. There can be no assurances that additional Special items will not occur in future periods. To compensate for this limitation,
management believes that it is appropriate to consider both Corporate expense determined under GAAP as well as Corporate expense excluding Special items.
31Calculation of Segment End Markets Revenue
Engine Fastening Engineered Forged Total
($ in millions) Products Systems Structures Wheels Segment
First quarter ended March 31, 2020
Aerospace - Commercial $507 $257 $184 $— $948
Aerospace - Defense $127 $44 $70 $— $241
Commercial Transportation $— $46 $— $191 $237
Industrial and Other $147 $38 $21 $— $206
Third-party sales end-market revenue $781 $385 $275 $191 $1,632
First quarter ended March 31, 2021
Aerospace - Commercial $227 $148 $80 $— $455
Aerospace - Defense $151 $42 $77 $— $270
Commercial Transportation $— $46 $— $227 $273
Industrial and Other $156 $36 $19 $— $211
Third-party sales end-market revenue $534 $272 $176 $227 $1,209
Differences between the total segment and consolidated totals are in Corporate.
32Reconciliation of Segment Adjusted EBITDA
($ in millions) Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021
Engine Products
Segment operating profit $161 $156 $621 $165 $105 $39 $108 $417 $101
Provision for depreciation and amortization 31 31 131 30 31 31 31 123 31
Adjusted EBITDA $192 $187 $752 $195 $136 $70 $139 $540 $132
Third-party sales $844 $828 $3,320 $781 $585 $485 $555 $2,406 $534
Adjusted EBITDA margin 22.7% 22.6% 22.7% 25.0% 23.2% 14.4% 25.0% 22.4% 24.7%
Fastening Systems
Segment operating profit $102 $99 $396 $96 $70 $33 $48 $247 $45
Provision for depreciation and amortization 12 12 48 12 12 12 12 48 12
Adjusted EBITDA $114 $111 $444 $108 $82 $45 $60 $295 $57
Third-party sales $391 $376 $1,561 $385 $326 $271 $263 $1,245 $272
Adjusted EBITDA margin 29.2% 29.5% 28.4% 28.1% 25.2% 16.6% 22.8% 23.7% 21.0%
Engineered Structures
Segment operating profit $40 $39 $120 $28 $19 $10 $16 $73 $10
Provision for depreciation and amortization 15 12 58 13 14 13 12 52 12
Adjusted EBITDA $55 $51 $178 $41 $33 $23 $28 $125 $22
Third-party sales $318 $312 $1,255 $275 $229 $206 $217 $927 $176
Adjusted EBITDA margin 17.3% 16.3% 14.2% 14.9% 14.4% 11.2% 12.9% 13.5% 12.5%
Forged Wheels
Segment operating profit $60 $60 $253 $50 $6 $35 $62 $153 $70
Provision for depreciation and amortization 8 8 32 10 9 10 10 39 10
Adjusted EBITDA $68 $68 $285 $60 $15 $45 $72 $192 $80
Third-party sales $241 $217 $969 $191 $113 $172 $203 $679 $227
Adjusted EBITDA margin 28.2% 31.3% 29.4% 31.4% 13.3% 26.2% 35.5% 28.3% 35.2%
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. Management believes that these measures are meaningful to investors because Adjusted EBITDA and
Adjusted EBITDA margin provide additional information with respect to the operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA
presented may not be comparable to similarly titled measures of other companies. Howmet’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and
33
amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general
administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization.You can also read
